List and explain the basic principles of insurance. – NABTEB QUESTION

THE BASIC INSURANCE PRINCIPLES ARE:

1. INSURABLE INTEREST.

– A person can insure any property in which he will suffer a physical or financial loss if the event to be insured against occurs.
– A person can only insure any property upon which such a person has a claim or title to.
– However, a business partner can assure the life of a fellow partner and
– A husband can assure the life of his wife or children.

2. UTMOST GOOD FAITH (Uberrimae fides)

– A person buying insurance must disclose to the insurance company, whether asked for or not, all matters concerning the object of insurance which will help the insurer determine whether or not to cover the risk.
– The insurance company is required to disclose the proposer of all facts material to the risk to be covered.
– Failure to disclose all the relevant facts void the contract.
– All contracts of insurance depends on the correctness of the details stated on the proposal form

3. PROXIMATE CAUSE

– There must be a close connection between the loss actually suffered and the risk for which insurance has been taken out.
– The insurance company will not be liable if risks other than those insured are involved.
– Claims must be related to policy.
– No claims arises if the immediate cause of loss is not related to the policy

4 CONTRIBUTION:

– If an object is insured with more than one insurance company, the amount claimable from an individual insurer will be limited to their individual rate-able proportion of the loss.
– The insured should not make a profit from the agreement when he is indemnified
– The insurer who has paid more than his fair share of the loss can recover the difference from the other insurer(s) afterwards
– If the insured recovers a sum greater than his actual loss, he holds the surplus in trust for the benefit of the insurer in proportion to their individual rights.

5. SUBROGATION

– It is the right which the insurance company has to stand in a place of the insured and avail itself to certain legal rights and remedies which the insured has against a third party who is liable for the occurrence of a loss.
– This is the right which the insurance company has over the insured who has been fully indemnified.
– The insurance company reserves the right to take over the rights and remedies of the policy holder after compensating him.

6. INDEMNITY

– The principle states that the insured should be restored to his former position before the incident occurred.
– The insurer should be indemnified to the limit of the amount covered by the policy.
– The insured should not make profits out of the insurance.
– The principle of indemnity, however, does not apply to life and personal accidents insurance.

7. POOLING OF RISKS

Compensation should be paid to those who suffer losses from the contribution made into a common fund by a number of insurers.